THE PROBLEM
I own a small country hotel in the South-west of England. Business has been quiet over the past few months, although I am expecting things to pick up in the summer. Until then, I've heard I may be able to get help with my tax liabilities. Is this the case?
THE LAW
In November 2008 the government announced plans to extend the existing time to pay arrangements in to a recognised service dedicated to helping businesses in difficulty.
The Business Payment Support Service is a telephone helpline that aims to help people with tax payments that are due or where it is anticipated that payments falling due will cause cash-flow problems.
It covers most taxes, including corporation tax, VAT, PAYE and national insurance, and allows businesses struggling with cash-flow to spread the payment of their tax bills. In other words, as long as business owners notify HM Revenue & Customs (HMRC) of an impending late payment and agree a payment plan, there will be no surcharges levied - although interest charges are still payable.
More than 110,000 businesses are reported to have made arrangements with HMRC through this service, deferring almost £2b-worth of taxes.
Some businesses have turned to the scheme as a way of freeing up cash after having overdraft facilities withdrawn or refusing to accept the unreasonable credit terms of some banks.
The decision to go down this route has been made easier by the low rate of interest charged on deferred tax, which is 1.75% for corporation tax and 2.5% for VAT, national insurance and capital gains tax.
EXPERT ADVICE
The government's decision to help businesses in these tough economic times is to be commended. But it is important to remember that the more time a business has to pay its tax liabilities, the larger the amount the government will collect in accumulated interest payments.
From the government's point of view, this is preferable to insisting on immediate payment and contributing to a company's demise.
I recommend you contact the service in advance rather than waiting until you are in arrears. The support line number is 0845 302 1435; it is open from 8am to 8pm Monday to Friday and from 8am to 4pm at the weekend.
Feedback on the helpline is positive, although there may be some delay as it is dealing with high call volumes.
When calling, have to hand your tax reference number, details of the tax that you are, or will have trouble, paying and basic information about your expected cash-flow.
CHECKLIST
- Keep on top of your future cash-flow projections by updating them regularly.
- Be realistic about your future incomes.
- Be aware of all future liabilities and build them into your cash-flow.
- Do not bury your head in the sand.
BEWARE
As the owner of the business, remember that you owe the company and its creditors a fiduciary duty.
Agreeing a payment structure with the Business Payment Support Service must be supported by an ability to pay all company creditors as and when payment falls due, including all future tax liabilities.
In the eyes of insolvency law, you must not "be worsening the position of creditors".
If, at any time, you feel your situation has become untenable, you should seek specialist insolvency advice.
CONTACT
Chris Lane, partner, Kingston Smith LLP
020 7566 3805
clane@kingstonsmith.co.uk